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PIT_PIT [208]
1 year ago
15

Suppose your company needs $14 million to build a new assembly line. your target debt-equity ratio is 0.84. the flotation cost f

or new equity is 9.5 percent, but the floatation cost for debt is only 2.5 percent. what is the true cost of building the new assembly line after taking flotation costs into account?
Business
1 answer:
Leviafan [203]1 year ago
3 0

Suppose your company needs $14 million to build a new assembly line. your target debt-equity ratio is 0.84. the flotation cost for new equity is 9.5 percent, but the floatation cost for debt is only 2.5 percent. The amount required to build a new assembly line = is $ 14 million.

Equity represents the price that could be lower back to an agency's shareholders if all of the property has been liquidated and all of the business enterprise's debts were paid off. We also can consider equity as a diploma of residual possession in a company or asset after subtracting all debts related to that asset.

Equity is the possession of any asset after any liabilities associated with the asset are cleared. for example, in case you very own a vehicle well worth $25,000, but you owe $10,000 on that car, the car represents $15,000 fairness. it is the price or interest of the maximum junior magnificence of investors in assets.

In conclusion, stocks are referred to as equities because they constitute possession in organizations. They permit buyers advantage from boom but also have a chance while enterprise conditions weaken. In the subsequent time, we'll explore the variations between shares and bonds.

Debt equity ratio (debt/equity) = 0.84/1

Therefore total assets = debt + equity = 0.84 + 1 = 1.84

Flotation Cost Percentage formula = Weight of debt x Floataion Cost of debt + Weight of equity x Floataion Cost of equity

= (0.84 / 1.84) 2.5% + (1/1.84)9.5%

= 1.1413% + 5.1630%

= 6.3043%

Amount to be raised to purchase building = Cost of building / ( 1 - Total Floatation Cost Percentage)

= 14/(1-6.3043%)

= 14/0.9370

= 14.94 million

Learn  more about equity here brainly.com/question/26507171

#SPJ4

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8 0
1 year ago
What is the change due if a $5 bill is tendered for a charge of $4.21?
never [62]
What is the change due if a $5 bill is tendered for a charge of $4.21?

A.0.79

3 0
2 years ago
Nichols Enterprises has an investment in 250 bonds of Elliott Electronics that Nichols accounts for as a security available for
abruzzese [7]

Answer:

securities available for trade: 250,000

Explanation:

The investment will be trade at market value. which is 1,200

Nichols cannot set the price of an assetat his own will. If possible a company will do it to increase his assets and look more solid than it is.

To evaluate the bonds at 1,200 the market price will need to be at 1,200

Currently the price third parties gives the security is 1,000 so it should carry the investment  at

250 bonds x 1,000 market value = 250,000

4 0
3 years ago
Weiland Co. shows the following information on its 2016 income statement: sales = $162,500; costs = $80,000; other expenses = $3
wel

Answer:

The 2016 operating cash flow is $56,905

Explanation:

The computation of the operating cash flow is shown below:

Operating cash flow = Sales - costs - other expenses - depreciation expenses  - taxes + depreciation expense

= $162,500 - $80,000 - $3,300 - $9,000 - $22,295 + $9,000

= $56,905

The interest expense should not be considered in the computation part. Hence, ignored it

7 0
3 years ago
Demand is the amount of a good that __________ can afford and want to purchase at each possible __________ and over a period of
True [87]

Answer:

i don't now

Explanation:

4 0
2 years ago
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